Parabolic SAR
Parabolic SAR Technical Indicator
Section titled “Parabolic SAR Technical Indicator”The Parabolic SAR Technical Indicator was developed for analyzing trending markets. It is similar to a Moving Average but moves with higher acceleration and changes its position based on the price. In an Up Trend, the indicator is below the prices, and in a Down Trend, it is above the prices.
Indicator Turns and Signals
Section titled “Indicator Turns and Signals”When the price crosses the Parabolic SAR lines, the indicator turns, and its values are situated on the other side of the price. This turn indicates the end of a trend, a correction stage, or a change in direction. It uses the maximum or minimum price of the previous period as the starting point.
Exit Points and Trailing Stop
Section titled “Exit Points and Trailing Stop”The Parabolic SAR is an excellent indicator for identifying exit points. Long positions should be closed when the price falls below the SAR line, and short positions should be closed when the price rises above the SAR line. It is recommended to only hold open positions in the direction of the SAR movement. The indicator can also be used as a trailing stop line.
SAR Line Movement
Section titled “SAR Line Movement”If a long position is open (price above the SAR line), the Parabolic SAR line will move up regardless of the price direction. The length of the SAR line movement depends on the scale of the price movement.
Calculation of Parabolic SAR
Section titled “Calculation of Parabolic SAR”SAR(i) = SAR(i - 1) + ACCELERATION * (EP - SAR(i - 1))Where:
SAR(i - 1)is the indicator value of the previous bar;EP(extreme point) is the highest high of the current uptrend, or the lowest low of the current downtrend;ACCELERATIONstarts at the step value (0.02 by default) and increases by that step each time a new extreme point is reached, up to the maximum (0.2 by default).
When the price crosses the SAR, the indicator flips to the other side of the price and the acceleration is reset to the step value.